Green logistics: Chesapeake Energy investment into Clean Fuels buoys potential for natural gas

The push for natural gas as a transportation fuel received a major boost this week, with the news that Chesapeake Energy, the second largest natural gas producer in the country, is committing $150 million into Clean Energy Fuels Corp., the largest provider of natural gas fuel for transportation in North America.

The objective of this investment, according to Chesapeake, is to support the transition by shippers and trucking operators from diesel to natural gas fuel.

This move comes at a time when the United States imports oil from OPEC at a cost of roughly $1 billion per day, and globally, OPEC revenues for oil purchases this year will be $1 trillion, according to Clean Fuels chairman and founder T. Boone Pickens. And of that $1 trillion annual tally, the U.S. is on the hook for 25 percent of that bill on a daily basis, said Pickens.

Under the terms of this arrangement, Chesapeake will invest $150 million into Clean Energy in the form of three $50 million tranches. The first one has been made and the other two will be made in June 2012 and June 2013, according to company officials.

They added that this investment will “accelerate the build-out of LNG fueling infrastructure for heavy-duty trucks at truck stops across interstate highways in the U.S….creating the foundation for “America’s Natural Highway Gas System.’”

What’s more, Chesapeake said that this investment will underwrite roughly 150 LNG truck fueling stations, which will increase the number of publicly accessible LNG fueling stations by more than tenfold and provide a foundational grid for heavy-duty trucks to have ready access to cleaner and more affordable American natural gas along major interstate highway corridors.

Chesapeake CEO Aubrey K. McLendon said on a media conference call that this effort is part of a plan to move America away from its roughly $400 billion annual investment on OPEC oil and move towards energy independence over the next ten years. And he added that natural gas costs roughly $1.50-to-$2 per gallon less than gasoline and diesel fuel.

According to the U.S. Department of Energy, 98 percent of the natural gas consumed in the U.S. is sourced in the U.S. and Canada.

“We think the resource base of the U.S. natural gas industry is so enormous that it makes sense to spread the benefits of greater natural gas supply throughout the economy,” he said. “So many of the country’s biggest problems today involve energy prices and foreign policy dictated by energy sources. We felt like we needed to try to develop a breakthrough…by increasing domestic oil production and natural gas liquid production by 3 million to 4 million barrels per day on top of the 8 million barrels per day in production already.”

Clean Energy officials said that several of the LNG fueling stations will be co-located at Pilot-Flying J Travel Centers, adding that the company has an agreement with privately held Pilot Travel Centers LLC of Knoxville, Tennessee to build, own and operate public access, compressed and liquefied natural gas fueling facilities at agreed-upon Pilot-Flying J travel centers.

“Deployment of new and innovative heavy-duty natural gas engines by world-class engine manufacturers and original equipment truck manufacturers such as Cummins-Westport, Kenworth, Peterbilt, Navistar, Freightliner and Caterpillar, combined with Clean Energy’s LNG fueling station construction expertise through our NorthStar subsidiary, the strategic locations afforded by Pilot-Flying J and the investment by Chesapeake, should serve to quicken the transition to natural gas fuel as a game-changer for heavy-duty trucking,” said Andrew J. Littlefair, President and CEO of Clean Energy, in a statement.

This development was positively received by both trucking and green logistics experts.

“This is encouraging news for the trucking industry that is looking to take advantage of domestically-sourced, low cost alternative fuels like natural gas,” said ATA Vice President and Regulatory Affairs Counsel Rich Moskowitz. “The lack of a robust refueling infrastructure is one of the greatest hurdles to the widespread use of natural gas in the trucking industry.”

And Brittain Ladd, global supply chain consultant for CapGemini Consulting, told LM that the announcement by Chesapeake Energy to invest in increased drilling of LNG, green gasoline technology, and LNG truck refueling stations is certainly going to be met with interest from the trucking industry and shippers.

“I have no doubt that the use of LNG will increase in the years ahead,” said Ladd. “However, what needs to be understood by all is that the demand for energy is so great in the US and the world that OPEC will continue to play a key role in meeting world energy needs. Additionally, OPEC is also investing heavily in alternative fuel technologies such as LNG, solar, and biomass so I would encourage the key players involved in the development of energy to make a commitment for collaboration and not confrontation.”